Kentucky Mileage Deduction 2026: 3.5% State + Local Occupational Tax

Kentucky's flat income tax dropped from 4% to 3.5% on January 1, 2026. Most Kentucky jurisdictions also impose local occupational taxes ranging from 0.5% to 2.5%. Louisville-Jefferson County, Covington, and Newport are among the highest. Your mileage deduction can reduce both layers.

Combined Rates

In Louisville with a ~2.2% occupational tax: combined state + local is about 5.7%. At 15,000 business miles: $10,875 deduction saves roughly $620 in combined state + local taxes, plus $4,056 federal. Total: about $4,676.

How to File

Deduct on federal Schedule C, Line 9 at 72.5¢/mile. Kentucky starts with your federal adjusted gross income, so the deduction flows through to your state return. Check whether your county or city levies an occupational tax, your mileage deduction may reduce that as well. Keep a mileage log with the date, destination, purpose, and miles for each trip.

Employer Reimbursement

Kentucky does not require private employers to reimburse mileage.

FAQ

Does my mileage deduction reduce Kentucky state taxes?

Yes. Kentucky uses your federal AGI as the starting point. Your Schedule C mileage deduction reduces that number, which directly reduces your state tax at the flat 3.5% rate.

Does my mileage deduction reduce the local occupational tax?

It depends on your jurisdiction. Many Kentucky counties and cities tax net self-employment profit, which is reduced by your mileage deduction. Check with your local tax authority.

Can W-2 employees deduct mileage in Kentucky?

No. The mileage deduction for W-2 employees was permanently eliminated under the One Big Beautiful Bill. Kentucky does not require employer reimbursement, so if your employer does not reimburse, you have no tax remedy.

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